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February 17, 2018

I have had the unique opportunity to be involved in shepherding members of my family through a maze of healthcare delivery systems. I can't tell you how much I'm looking forward to Amazon to gain a presence in this industry.

The system that clearly doesn't exist and should is a secured link between medical prescribers and pharmacy inventories. If I were Jeff Bezos I would get busy readying my M&A people to purchase Caremark. CVS is, to my knowledge, the most thorough and extensive business that handles the delivery of pharmaceuticals. But they also deliver other services, like roadside assistance. Strategically, Amazon has the most to gain by extending their ability to coordinate and deliver more services. So sentimentality aside, Walgreens name recognition might work better for the short term, and lord knows they need a makeover, but Caremark is a better target. As for Right-Aid, there's a bit too much overlap with Whole Foods. So Caremark.

I learned a long time ago that delivery and inventory controls were a very significant part of the value of Philip Morris profitability. In exchange for signage in convenience stores, they offered free point of sale systems. Those systems in a coordinated fashion allowed the tobacco giant to figure out how much of their product was leaving retail. Since they knew how much they were producing on the manufacturing end, they could estimate how much was in transit and inventory in the part of the supply chain they did not control, logistics and transportation. The competitor there was McLane Logistics. PM was able to figure out how much inventory to sell the McLane and squeeze inefficiencies out of their delivery system.

This is something that is clearly not done in the pharmaceutical business, and whomever gets there first will have a huge leg up. There are few things more nerve wracking for patients than to have a prescription on hand and not be able to fill it in a timely manner. That doctors and pharmacies depend on office hours and phone calls is absolutely ridiculous.

February 05, 2018

Here's the highlight reel. When Peter Drucker invented the MBA part of the idea of professional business management was that ordinary individuals could be trained to run a business. Not a generalized business, but a specialized business in some category. (NAICS codes). The way Harvard has been teaching case studies was that within the scope of business and product analysis such a cadre would be measured and their public company made an indicator by P&L and balance sheet metrics to the public shareholders. IE, IBM competes in its NAICS sector, becomes a market leader taking product share away from competitors, then you know to buy the IBM ticker. All the analysis is around product competition and market share and the effectiveness of management has everything to do with its ability to execute in that narrow area.

This doesn't work for general contractors. This doesn't work for hospitals. This doesn't work for software. This doesn't work for conglomerates. Shareholder maximization only works for certain kinds of single focus businesses. So long as the balance sheet works, in this narrow way of looking at business performance, you can justify all kinds of trickery which is not good management or good governance.

So there are only a few management teams, relatively speaking, who know how to make a company profitable on narrow profit margins. A conglomerate can have a balanced portfolio of businesses that won't suffer the business cycle. That's how Berkshire Hathaway makes money. By running multiple businesses in different NAICS and not making their whole company dependent on a killer app. Each of these businesses, after a time, contribute to a large pool of funds that allows the directors to make experimental buys in new areas, instead of mergers in the same area. Bezos has said specifically that Amazon can afford to make billion dollar mistakes, because the underlying businesses are already fully capitalized and don't need to keep growing or be leveraged before they are mature.

People have wanted AWS to be spun off from Amazon for years, and Wall Street has been hedging on the stock price because before it became a market leader, he never broke out it's P&L and balance sheet from the whole of the company. Wall Street for the most part doesn't know how to do company management analysis either. That's why index funds are winning. Anyway, conglomerates are safer from hostile takeovers because the executives actually understand how to run their businesses and there is no incentive to sell out the business. That's why a class of Silicon Valley VCs and entrepreneurs loathe the idea of working for Amazon. There's no exit strategy. You don't exit conglomerates. They scale horizontally.

It's interesting how well Bezos has run it as a conglomerate, given the bad news recently about GE. I don't think, outside of P&G, that most Americans understand conglomerates. So I'm hoping that Amazon does a stock split and gets listed on the Dow.